Delta Air Lines doesn’t even upgrade their ‘secret’ 360 members very much anymore. Good luck if you’re a Diamond Medallion.
They sell nearly all of their first class and business class seats, and will take any amount of money from a once a year traveler for that seat rather than giving it out as a complimentary upgrade to a loyal passenger spending tens of thousands of dollars with them each year. That is their philosophy, as described by airline President Glen Hauenstein at the carrier’s Investor Day this week.
He described their journey – and the contrast – over the past 15 years. The primary value in elite status was always upgrades, and once being a SkyMiles elite was very valuable (as it was at other airlines, like American and United). It’s no longer nearly as valuable, though others haven’t gotten quite as far with this as Delta.
Only 13% Of Delta’s First Class Passengers Sit There On Upgrades
In 2009, 81% of Delta’s first class seats were filled with awards, upgrades or employees. 11% of those seats were filled with paying passengers, and 8% were empty. Here’s what Hauenstein explained
- Domestic first class load factor was 92 fifteen years ago.
- 12% of that was paid, however “six points of that was domestic portion of international journey” so long haul business class passengers were getting that domestic first class seat, rather than actually just buying domestic first class.
- “We only sold about six points of that 92% load factor” to domestic passengers.
Now, 13% of passengers sitting in first class are upgrades. Heauenstein said,
- “Today we’re sitting right around 75 (paid)”
- “Still at 92% load factor.”
- “12 points [of that] going to upgrades.”
Delta Has A Problem And Doesn’t Seem To Realize It
Delta touts its lucrative credit card partnership with American Express, and rightly so. They generated about $6.9 billion in revenue from Amex last year.
- The problem is, when they signed this deal in 2019, they projected to hit $7 billion in 2023.
- But we’ve had close to 20% inflation since then, which wasn’t factored in making the prediction in 2019.
- So they ‘really’ only did about $5.5 billion in real (2019) terms, falling drastically short of projections for this deal.
The airline now gives away free wifi to sign up SkyMiles members, hoping to convert new SkyMiles members into credit card customers. But people signing up for the wifi likely do not convert at nearly the same rate. It’s the same thing they want out of their Starbucks partnership, but Starbucks customers aren’t likely to convert as well either.
It appears they’ve tapped out their model of growing revenue while giving less to the customer. For a long time, Delta was able to devalue their program without costing themselves high margin card revenue, while other airlines generally took hits on their co-brand product when devaluing their miles.
Delta has had a strong brand and reputation, and they’ve had a largely uncontested market position in Atlanta, the Upper Midwest and Salt Lake city. People stuck with them no matter what they were getting for their miles.
But a year ago Delta had the life scared out of them. They announced a major devaluation meant to use status and club access to drive more card spend and jump start revenue, massively increasing the requirements for status while introducing significant card spend as a way to make up for it (see Delta Tells SkyMiles Members: Stop Being Poor) and limiting card access to lounges without significant spend.
However there was such a customer backlash that the airline not only largely put off these changes, but introduced sweeteners like much more generous lifetime elite status. They wouldn’t have done that if they weren’t seeing enough cancellation of Amex cards in a short period of time.
Airlines Are Thinking About Their Premium Product All Wrong
Hauenstein described the airline as moving away from a model where they ‘gave away’ their best product as a ‘loss leader’. So they stopped doing it.
He posed the question of what do you do when a product is losing you money? One idea is to eliminate that product. 20 years ago Alaska Airlines considered eliminating first class, but decided that it was too important to its frequent flyer program, which in turn was too important to the airline, so they kept it and decided they did need to generate more revenue from it at the same time.
Delta decided that they didn’t want to offer first class upgrades. They branded extra legroom coach (even middle seats) as a different cabin and started calling elites sitting there an ‘upgrade.’ They redefined the meaning of upgrades, like Marriott renaming ‘Suite Night Awards’ as ‘Nightly Upgrade Awards’. Marriott doesn’t deliver suite upgrades enough, so they’re redefining what an upgrade means.
But when there’s not enough value in chasing status, and mid-tier status becomes the sweet spot, then you’re no longer driving the behavior that you need out of your program.
While SkyMiles has intentionally offered less value for their miles than competitors, new competitors have been in an arms race of value. Even American Express competes with Delta (through Membership Rewards), and not only Chase and Citi but now Capital One and Bilt compete by offering strong value for card spend.
Delta’s unique selling proposition is opening up access to the best Delta products but if they aren’t doing that they’re choking off their own revenue and sending people to spend with competitors.
And to an extent – though not as far as Delta – both American and United are doing the same by selling upgrades for ‘tens of dollars’ preferring to take any incremental revenue over a portfolio of revenue from a long-term customer secured by an upgrade. United actually pioneered the model, and American will sell upgrades for as little as $40. When I was a ConciergeKey member my upgrades were better than as an Executive Platinum, but inconsistent at best.
More Fare Segmentation At Delta – The Upcoming Basic Business And First Class – Is Meant To Avoid Giving Upgrades
Delta is adding premium seats and part of the most to further segment their products – they’ve done basic economy for coach, but not for premium economy or business class – is that they are going to have more of these seats to sell and need to figure out how to do it.
Already they find themselves offering paid upsells to business class at $299 sometimes, because they don’t have enough passengers willing to pay full price to sell out the seats.
- So how do they sell all the seats
- Without lowering the price to everyone
- The answer has to be some form of price discrimination
Delta needs a way to offer different prices to different customers. As Charlie Sheen put it in Wall Street, when he laid out his plan to take control of BlueStar Airlines, “We squeeze every dollar out of each mile flown. Don’t sell a seat to a guy for 79 bucks when he’s willing to pay 379.”
Airlines used to use Saturday night stays and 14-day advance purchase requirements to separate business and leisure travelers. They’d charge full price to the business customers, and offer discounted seats to the coach passengers. They didn’t want to offer the low price needed to fill the plane to everyone or they’d lose revenue that those business travelers were willing to pay.
Those old tools don’t work so well anymore, because low cost carriers came in and started offering cheap fares without roundtrip purchase and without significant advance purchase. The new tools airlines have are basic economy (which leisure travelers will generally buy but business travelers not) and going forward Artificial Intelligence and ‘personalized pricing’ that Delta says they are working on to present a specific price based on what they know about a customer.
If they have more seats to sell, they need to segment their premium cabin customers just like they do for their coach cabin. The last thing they want to do is undermine revenue from highest payers – or have empty seats being given out free to elites as a “loss leader” in Hauenstein’s words.
I’m fine with it.
another recycled article with lots of Gary opinions and no new facts.
I have no idea how AI will work to increase pricing power for DL but you are kidding yourself if you don’t think that other airlines aren’t doing the same thing – or will.
Airlines have been offering personalized upgrade offers to passengers for years. AI will only enhance the process of figuring out to send the offers to and getting the highest revenue from those that accept the offer.
And, the simple reality is that DL didn’t lose in tightening its SM qualifiers last year; they and Amex have more than enough data to know when things are changing and respond accordingly.
It is FAR EASIER to make changes to an AI individual pricing model if something doesn’t work than it is to SM qualifying metrics.
we realize you have a blog to write, Gary, but please do think through what you write just a tad more than you do.
I’m assuming Delta 360 members are buying premium outright and therefore upgrades aren’t a driving factor. Since qualifications for the invitation only elite level is not known it’s hard to know why people are invited.
Selling upgrades is the future for US domestic airlines and days of near automatic complimentary upgrades to the top (published) level and a potential for mid and lower tiers is well over. Just as a mile based elite earning qualification.
If first is that important to you monitor your reservation. The upgrade offers at least on AA are can be generous but you have to keep checking.
Delta’s AI is so premium it actually gives higher dynamic pricing depending on how many nights you’ve slept on the floor in the domestic terminal in ATL without accommodations (after your flight has been cancelled four days in a row)…
Delta sucks at offering paid upgrades, I have been able to upgrade on Virgin (hint how to best use your Delta medallion status) and British Airways BOS – LHR for way less than the upgrade cost for BOS-DTW. Acknowledging that making money involves charging as much as you can, Delta could at least set upgrade costs on a sliding scale with Medallion Status, reward loyalty in that way instead of bargain basement upgrade sales to the disloyal customer. Being blessed to have Skyteam partner service to all destinations in Europe and Asia from Boston (luv that KAL service) I avoid Delta on almost all of 20+ international flights, and got lounge access just for my status (imagine that) no matter what fare class or credit card I used. Remove the perks of loyalty and the loyal will adjust, if only I could transfer my millionmiler status to a Skyteam partner I could then also dump the Amex.
I think Delta is heading down the slippery slope to destroying loyalty.
I recently had flights in PS and D1 internationally. Nether the hard or soft product is all that great.
I’ll need to go to Hong Kong again before long.
This time I’m going the long way. EK business via Dubai. Hard and soft product is better, free overnight to break up the trip and I’ll actually enjoy the flight.
If Delta keeps going like it is, there will be no reason other than best price to fly with them.
Several million miles and many years flying only Delta. I did manage an upgrade on a 1 hour flight today. Points ticket at about .005. Not great. Half past value.
With AI the major carriers will be able to get $$ for all the biz/1st class seats thereby reducing complimentary upgrades to elite status customers to just about zero….for low level elites it is already zero and for upper level elites it is barely reaching 50%. Since comp. upgrades is probably the biggest value for reaching elite status, it is my prediction that with the lower and lower rate of receiving upgrades will result in less and less elite status chasing, whether it is by credit card spend or actual airline tix purchase. In less than 5 years I foresee the end of elite status…the airlines will not have any worthwhile rewards to compensate the cost of achieving the upper levels of elite status. Complimentary admission to clubs on international flights is barely worth it now, and will be less in the future – you can enjoy better service in one-time admission clubs. I’ve already stopped renewing my United Club card…as the few times I fly United did not justify the cost of “free” club admission. I am Gold with United and received ZERO upgrades on the 30 or more flights I flew on United this year. I couldn’t even buy an upgrade on several long distance flights. The trend is obvious, airlines want to get some $$ for better seating, even if it is a token amount, rather than reward loyal flyers or big spenders who purchase lower cost tickets in fond hopes of getting an Upgrade. Welcome to the new world of “frequent flying” which is simply get on the bus and sit in the back and stop squawking or you won’t be able to fly anywhere. The past is past and the future will be you get what you pay for and there will not longer be any free lunches!
We are in a relatively new environment where an airline can sell out all of its planes for cash regardless, so why would they give something away to people who fly it a lot? (Unless you thought that was going to change, which they clearly don’t.) At this point, I am mainly paying for domestic F on whatever is the best combination of price and schedule, and then using those miles (on DL, I credit them to my FB account) to pay for international business saver awards on the (much better) EU airlines. And I don’t put much spend on the CCs through the airlines, except for AA, which, though I rarely fly them, gives access to cheap BA TATLs (57.5k – recently 37.5K for IB), as well as status to then select seats at booking for free – worth about $200 per person each way.
I think he worded the complaint poorly, but I can’t see why you would want to deny a one time passenger who pays cash for a first class seat in favor of your premium frequent flyers.
To my knowledge, every loyalty program has upgrade verbiage along the lines of “availability” not “guaranteed”.
I’d love to see Gary’s face if he paid cash for a first class seat and then at the gate be told “you can’t board because we gave your seat away as a free upgrade to our premium frequent flyer”.
More people are loyal to their credit card and not their airline now. Be a free agent and buy the seat. Upgrade was to get people on the hamster wheel to keep spending and wanting status. It’s addictive like a lotto ticket; you might win the first-class seat.
The strategy is obvious: once you build loyalty, milk it for all that is worth. That means reducing the benefits of loyalty. People are creatures of habit. Once you build a habit, most people will just follow that until something forces them to break it. Bilt is doing this by offering 3x on streaming services for like 6 weeks (targeted offer). The idea is to get you to migrate a recurring charge to the card, then hope that a big percentage don’t move it back. The airlines and the big hotels have gotten people to move away from OTAs and to direct booking (with a co-branded CC). Once that habit is established, you can turn up the revenue earning through those channels with discriminatory pricing. Some hotel chains are charging MORE to their elites than through booking platforms. Delta wants to do the same thing. And it will work. Those that pay attention will turn away from loyalty much quicker, but there will be a massive amount of spending that just gets thrown on a co-branded card through the direct channel for a 10-20% premium to the market. It will stay that way until someone gets too greedy and hikes prices on their elites too quickly. Delta came close last year. Marriott is now trying to sell “exclusive” packages to Brilliant card holders at inflated rates (that only really make sense on 1 night stays). Delta and Marriott will probably do more experiments and pay more attention to consumer behavior as they move forward. But the goal is clear: get your followers to pay more for less.
I’m a leisure traveler who flies first class domestic and business long-haul. I buy based on schedule and price rather than chasing airline status or miles. Therefore, for me lower prices are good and I don’t care about upgrades.
I’m guessing airlines prefer those like me to those who gain status by buying many coach fares. Whether they prefer those like me more than those who spend a lot on branded credit cards is unclear – maybe not since credit card spend is essentially pure profit.
One serious downside to selling out a cabin is an IROP situation. Delta’s airplanes are so full in all cabins that it is a serious challenge to rebook on a same-day flight when you miss a connection because of a mechanical or some sort of irregular situation. We’ve seen this when there’a a Delta computer crash or some other big incident. It takes days, if not weeks, for Delta to recover.
With that said, Delta corporate leadership is basically Louis XVI at Versailles. They are so, so isolated and insular. Completely tone deaf to their customers, including their best customers.
You can’t keep screwing customers who spend $35,000 or $50,000 a year and expect business to continue as usual.
Things are so bad every Sky Club in the system now has a banner hanging outside the entrance pimping the Delta-AmEx Reserve card, promising “instant access” to the Sky Club. It’s so tacky.
So much of this is based on author’s opinion. If Delta’s intention is to piss off their customers (very unlikely) than let them feel the repercussions of it. If this proves to be very unpopular then they will lose their customers. I feel like their is a huge case of entitlement in the thinking of some people. Delta still is the best US carrier. The people have said so repeatedly.
People paying cash for a first class seat, like myself, have every right to that seat just the aame as any other passenger paying for that seat. If someone is complaining they’re not getting a free upgrade I would argue that person is whiny, entitled, asshole.
Gary – get over it! Trust me I loved the almost guaranteed upgrades in the late 80s and 90s as a DL Royal Medallion (any one else old enough to remember that). Also when EP on AA and President Club (think that was title) on US I got upgraded 80-90% of the time up until around 2015.
Those days are gone. The US was unique in issuing upgrades and now the airlines are changing to a model of selling them. If you want first buy it or pay for the upgrade. BTW all the whining about not giving value to elite travelers is moot if the airlines are doing it. Those days were nice but all the whining won’t make airlines start giving away upgrades like they did in the past.
BTW those of you flying on OPM (I did for 40 years before retiring) spend a couple hundred on an upgrade out of your pocket. Don’t be cheap if you really want it
jesus mcchrist.
Why would anyone give away their premium product for free if someone is willing to pay the premium?
Common Fact of Life: You get what you pay for. This article is retarded.
@ Tim — So, you are now Gary’s boss?
We know you have other blogs to read. Go read them.
AI pricing is another airline exercise in stupidity -right now, they do not need “loyalty” since business is quite good however, this is a very cyclical business and when they will need loyalty, it won’r be there –
Every airline executive should take a course in PanAm 101 – yes, there were many factors that led to their demise but an important one was that they took their customers for granted…..
The first time that i see that i am being charged more than someone else for the same product will be the last dollar that that airline sees from me!!
All you have to do is to log-on incognito or have someone else check for you –
@ Gary — Delta’s AI better be able to know that people will just book somewhere else, or they are not going to get too far with this thievery. Only share your location data with Delta while you are boarding your Spirit flight and cancelling your backup flight on Delta that cost 3x.
@AC–Royal Medallion–yep, I still have my Delta-issued Royal Medallion brag tags (not sure why). I seem to remember in the 1980s being able to upgrade any full Y ticket to first class for $35, and getting frequent flyer miles based on a first class purchased ticket (so the net price was closer to zero).
@Richard. I’m in the same boat as you: “I’m a leisure traveler who flies first class domestic and business long-haul. I buy based on schedule and price rather than chasing airline status or miles. Therefore, for me lower prices are good and I don’t care about upgrades.”
But, “I’m guessing airlines prefer those like me to those who gain status by buying many coach fares.” This is where we depart. I spent $13,000 on international J (mostly) and domestic F last year. I’m quite sure they like the guy spending $40,000 or more in Y better, and give him higher “status.” But, they feel safe not giving him much for status. First, he may be effectively stuck flying your airline based on home airport. Plus, what happens if he gives his loyality to another? While not good for you, if the other guys cheapen status value, he may not move and/or you get some of their defectors.
The bottom line is: we can devalue the rewards for loyalty because we expect others to do the same. All the airlines win. They give away less free stuff, but get the same from those status holders. Who do they switch to if we all devalue?
@Dave W. says: “The bottom line is: we can devalue the rewards for loyalty because we expect others to do the same.”
Yes, the airlines and large hotel chains effectively collude with each other to monopolize the market and limit consumer choice by publicly forecasting their goals in such a manner that the competing companies or most of the competition move in the same direction.
Stephen Rothmeyer has been reincarnated!
Everybody and his brother is online trading tips on CCs, miles/points. Compared to years ago, it’s utterly immense the change.
I remember when I started touting the WN CP in about 2005-6, I was laughed at by my FT friends. There were about 10 of us online discussing it. Now there are Facebook groups with 100000s of people going for CP and they learn in 5 minutes about the 2 CC trick. Get it for a couple hundreds of bucks for 2 years. I don’t see how WN can sustain it.
I do not follow DL much, but I imagine it’s the same. People with means buy FC because they know they won’t get the upgrade competing with armies of Skymiles people. Vicious cycle.
Completely different game now.
@FNT “Yes, the airlines and large hotel chains effectively collude with each other” They’re too smart to collude in a way that could get them caught. But, it’s very much like nearby gas stations: I can see exactly what your new price is when you post it. I can degrade my program. If you do, we could call that collusion, but we reach the same place without conspracy. Plus, I can always rescind the change if you don’t match. I think the path is clear: miles and status will get you less over time.
@toomanybooks: It’s also supply and demand. Delta’s 350s that replaced the 747 had too few business-class seats. It takes a while to correct poor planning. The new 350s will have an expanded business-class footprint. Domestically, Delta could probably easily add two rows of first-class to most of the planes for a total 8 more seats.
Except for IRROPS accommodation, no airline should provide upgrades for free, regardless of elite status.
Glad to see in the comments above that most have accepted this fact, and agree that it is so much better for the airline to offer premium cabin seats at reasonable price points instead.
Thank you Delta! (And American and United).
This mentality is just stunningly stupid. If Delta takes away the biggest benefit of being a high level elite member then why wouldn’t people just get a Delta credit card for a couple hundred bucks a year to get better loading category spots and a free bag while on Delta and normally fly other airlines? I realize that no U.S. airline holds engaged loyalty members in such contempt as Delta but actively driving away the people keeping you in business sure seems like a bad idea. Good thing for Delta they have their fortress hubs and vassal airlines.
@DaveW, they are not acting as if they prefer the $40k Y pax, since they are making things better for us (lowering costs of J/F) and worse for him (making status less valuable).
The goal is more profit, not just more revenue.
Lack of upgrades only hurts OPM flyers who are only allowed Y
And that’s ok. Freeloaders.
I have no idea why anyone still charges to a Skymiles card, and I’ve had that opinion since before the pandemic. A cash back card and buy the ticket beats any value you can get from a skylines card.
I even quit making purchases on the United card … I have one for the Club membership and that’s it.
I feel like airlines have gotten themselves to the point that they lose a credit card customer every time someone tries to book a miles ticket and is confronted with just how bad a value proposition that now is.
Another article about not getting a free upgrade. @Gary, FF programs don’t reward loyalty, they are a revenue generating program for the airline. If you want an F or J seat, pay for it. Airlines barely break even selling economy seats, so their is incentive to generate more money with ancillary fees such as selling seat upgrades.
Diarrhea Delta will do anything to make a buck. Shocker. Not. Diarrhea Delta has always been the most parsimonious airline in the industry, using marketing dollars to make passengers imagine they were getting a special product. In fact, it is just the stench of diarrhea up and down the aisles and in seats while the lavatories and FA fannies reek of hydrogen sulfide.
Airlines should stop with free upgrades altogether and instead focus on giving more robust and reliable service perks and waivers to their highest revenue customers.
This article comes off incredibly elitist. Airlines don’t make a profit from their main cabin seats. They make it from their premium seats.
To expect to get free premium seats would mean main cabin tickets would have to be raised.
It’s typical the 1% want the poor people to have to pay more so they can get more free shit.
Dropped my Delta Am Ex years ago, and focused my travel on American. But I think Delta s doing the right thing here, selling first class seats for cash to the extent possible. In effect they are narrowing the premium and making extra comfort available to those willing to pay for it.
If you’re paying double or more than a discount carrier and getting the same seat and service, while the discount carriers allow you to use their points any time on any flight why stay with DL? I’m burning down all my points with 1st class flights and then switching over completely to the discount carriers with occasional DL flights where discounts don’t fly or maybe UL and AA instead. Points and customers doesn’t mean anything to DL anymore and it shows.